New Rochelle Board of Education: Criminal Enterprise Masquerading as an Educational Institution - Part XXII

NEW ROCHELLE, NY -- After recent changes in the Facilities Department of the City School District of New Rochelle, the effective hourly rate to rent the New Rochelle High School swimming pool a two-hour session in July 2017 is $236.63. By September, the effective rate will rise to $273.15. These rates are in line with the going rate to rent a full-sized indoor swimming pool in Westchester County.

How then to explain that for many years, the City School District of New Rochelle leased the pool at New Rochelle High School for free to a business whose principals included Kip Fierro, the school's swim coach?

The swimming pool sits at the intersection of the Facilities Department and Athletic Department. So, one explanation might have something to do with two ongoing corruption investigations.

The United States Department of Justice is currently investigating a wide-ranging bribery and kickback scheme involving the previous Director of Facilities John Gallagher, the man who gave Badger their highly lucrative deal. Gallagher was indicted by a federal Grand Jury last May for accepting kickbacks from a construction contractor who entered a guilty plea the day before. More indictments are expected to follow. The Westchester County District Attorney is currently investigating financial fraud in the Athletic Director's Office.

The pool was leased out for about two decades at well below market rate, most of that time given away for free. At 750 hours of permitted pool time each year, at between $200 and $250 below the hourly market rate, that giveaway would be worth more than $150,000 a year. That is a tremendous benefit, transferring millions of dollars over time from a tax-payer funded facility to a closely-held private company which was required to provide income statements for its' pool operations to the District but never did. Put another way, what would motivate people like John Magnotta, John Quinn and John Gallagher to bestow such munificence on Kip Fierro and his family? A love of competitive swimming? We think not.

The operation of the swimming pool at New Rochelle High School has been ripe for a criminal investigation for a long time.

Badger Swim Club has raked in millions of dollars running a privately-owned swimming business out of the tax-payer funded New Rochelle High School swimming pool. Badger paid nothing and in return got exclusive control of the pool -- outside of school use -- racking up more than 750 hours a year.

By the time of our initial reporting on Fierro in 2012, the District had finally begun charging Badger about $20,000 a year, an effective rate of about $25 an hour. Soon after, Fierro became embroiled in a legal dispute with his family after which he parted ways with Badger Swim Club, on an acrimonious basis, after 40 years.

In 2015, Fierro created a new company, the New Rochelle Aquatic Club, which today shares the New Rochelle High School pool with Badger Swim Club in an uneasy truce. One thing has not changed, the Fierro family controls the pool.

Fierro works as a full-time employee for the Athletic Department at New Rochelle High School entitling him to salary, benefits and a pension. He receives an additional stipend as the swim coach for the high school and is paid thousands more for SHAPE Academy, a District summer program. All while operating, first Badger and now the New Rochelle Aquatic Club out of the school. The company website lists 265 Clove Road, the address of New Rochelle High School, as the business address of New Rochelle Aquatic Club.

We will update our reporting on Badger at another time, our focus in this article is Fierro's new company and his sweetheart deal with the District that has gotten him access to the pool at below market rates.

"The going rate in the area is between $150 and $250 per hour," said Chris Bisignano, Associate Athletic Director at SUNY-Purchase, which makes pool time available to a wide range of organizations including the Red Cross, Rye Brook Recreation Department and, notably, the Badger Swim Club.

SUNY-Purchase's Bisignano expressed surprise when informed how little the Badger Swim Club paid to use the New Rochelle High School pool.

"That wouldn't even cover the cost of operating the pool", said Bisignano who said the cost to operate an indoor pool was about $75 to $100.

Talk of the Sound recently requested and obtained all public records of the New Rochelle Aquatics Club on file with the City School District of New Rochelle. These records show that Fierro first applied for a permit to use the New Rochelle High School pool under the name New Rochelle Aquatic Club on August 3, 2015 and that up until this month was undercharged a total of more than $18,000 on 6 permits, one-third of them issued without a required liability insurance certificate on file.

A review of these records shows sloppy record keeping, missing documents, missing signatures on legal documents (in one case the Athletic Director signed a permit application form on behalf of Fierro's company), and worse.

To obtain a Use of Facilities permit from the City School District of New Rochelle there is a long list of requirements detailed in Section 3280 of the District’s Board Policies and Superintendent’s Regulations.

Any group or organization wishing to use the school facilities “must secure written permission from the Board or its designee and abide by the rules and regulations established for use…”. Those rules and regulations are spelled out in Section 3280 which states:

District facilities may be used for various activities including “Meetings, entertainment, and occasions where admission fees are charged when the proceeds are to be spent for an educational or charitable purpose, as approved by the Board of Education”

To ensure that District facilities are preserved for the benefit of the greater District community, only non-profit organizations that serve the New Rochelle community will be granted permission to use school facilities. Non-profit organizations that do not reside within the District boundaries but serve a minimum of 75% of District residents shall be deemed an organization that serves the New Rochelle community

Use of District facilities will only be permitted where the organization provides the District timely evidence of adequate insurance coverage to hold the District harmless from all liability, property damage, personal injuries and/or medical expenses.

All applications must be signed by an authorized agent of the group or organization requesting use. The applicant’s signature on the application shall attest to the group or organization’s intent to comply with all Board of Education policies and regulations and to use District facilities strictly in accordance with the use described in the application.

The requirements are expanded upon in a Terms and Conditions Letter, which serves as a lease agreement, and a Use of Facilities Permit Application, in which an applicant affirms compliance with those terms and conditions.

The Use of Facilities Permit Application was most recently revised on August 25, 2016, and before that on June 13, 2016, and before that on December 22, 2014, but has largely stayed the same since New Rochelle Aquatic Club was formed. In 2016, the header of the form states the application is from the Facilities Department, In 2014, the header uses the term Department of Environmental Services.

The Use of Facilities Permit Application states, in red, capital letters, that permits are not valid without the “School District’s Approval, Signatures, and Certificate of Liability Insurance”. In various ways, New Rochelle Aquatic Club has failed to meet these requirements and so has never held a valid permit for the pool at New Rochelle High School.

The Use of Facilities Permit Application requires the applicant to provide information and attest to that information including the Date(s) and Time of Event (which cannot be altered without Board approval), Anticipated Attendance (both Adults and Children) if Admission will be charged and, if so, how much. The form requires an applicant who charges money to provide, on a separate sheet, a statement of event receipts, expenses, profits, if any, and how the profits will be utilized. Any profits must be donated and that donation recipient must be indicated on the form. The application must be dated and signed by a representative of the organization.

The Use of Facilities Permit Application requires the dated signatures of six District officials: Principal, Director of Security, Assistant Superintendent for Business & Administration, Director of Facilities, Head Custodian, Director of Athletics.

The Terms and Conditions Letter, effectively a short-term, limited-use lease agreement, is the legal agreement issued if a Use of Facilities Permit Application is approved. It describes the approved facilities use, the permitted dates and times for that facilities use. the estimated fee, and various conditions, including:

Admission may not be charged by the lessee unless approved by the Board of Education, in which case a written statement of receipts, expenses, and use of proceeds, together with other documentary evidence, shall be (MISSING WORD - filed?) following the use of (MISSING WORD - the?) facility.

Our facilities are available only to NOT-FOR-PROFIT organizations. If any admission is charged, kindly forward to the attention of the Environmental Services Department a statement in which you advise the Board of Education that all profits will be exclusively turned over to the charity of your choice after you have covered the normal expenses of your operation.

Fees are applied from the time one enters the building/premises for setup until one leaves the building/premises after clean-up. An additional hour will be required in order to cover the cost of custodial services rendered in opening and closing of the building/premises.

A Hold Harmless Form “must be signed by an authorized official or representative of (the group or organization) who is duly empowered to sign such a clause”.

There have been six permits issued to the New Rochelle Aquatics Club since it filed to become a Delaware corporation on April 20, 2015.

Fall 2015 (Sept - Dec 2015)

Spring 2016 (Jan - June 2016)

Summer 2016 (July 2016)

Fall 2016 (Sept - Dec 2016)

Spring 2017 (Jan - June 2017)

Summer 2017 (July 2017)

For each permit there are a standard set of requirements, described above, that can be formulated as a series of audit questions:

Is there a Certificate of Incorporation on file?

Is there an IRS Determination Letter confirming a corporation is a 501(c)(3) tax-exempt entity in file?

Is there a Use of Facilities Permit Application on file?

Is the Use of Facilities Permit Application signed by the applicant?

Is there a complete set of dated signatures on the Use of Facilities Permit Application?

Are the following correctly filled out in the Use of Facilities Permit Application?

Is this a profit making organization (please circle one) Y / N

Will there be an admission charge? (Please circle one) Y / N

If yes, how much: $ _______

Statement of event receipts, expenses, profits, if any, and how they will be utilized

Name of Organization profits will be donated to: _________________

Is there a valid Certificate of Liability Insurance on file?

Is there a Terms and Conditions Letter, dated and signed by both parties, which details the approved use of the facility including dates and times on file?

Is there a Hold Harmless Agreement, dated and signed by both parties, on file?

Is there an invoice for the period described in the Terms and Conditions Letter and Use of Facilities Permit Application?

Was the invoice paid by a corresponding check number?

Does the invoice include an "extra 1 hour" per permitted session to cover the custodial cost?

Missing from this list is any requirement of the lessee to provide records needed to determine whether the organization is “local”, meaning that 75% of the participants are from New Rochelle. The Use of Facilities Permit Application does not ask for a roster providing residency information for each participant and attendance sheet to know which participants actually attended particular sessions. As a result, the District has no idea what percentage of participants are New Rochelle residents and cannot apply the “75% local” requirement. It seems doubtful that Badger meets the requirement; it is less clear whether or not New Rochelle Aquatics Club meets the requirement.

Applying these questions to each of the six permits issued to New Rochelle Aquatics Club shows quite a few major problems with those permits and many minor problems. At least three of them should never have been issued based on fatal defects with the original application.

There is a filing submitted for a Certificate of Incorporation on file for New Rochelle Aquatics Club in the State of Delaware on file but there is no IRS Determination Letter confirming Fierro's corporation is a 501(c)(3) tax-exempt entity or other proof they are a Non-Profit online.

Talk of the Sound requested and obtained 990-N (ePostcard) Filings from New Rochelle Aquatics Club for 2015 and 2016. Using the Employer Identification Number (EIN) listed on the 990-N forms, a search of the IRS database of Exempt Organizations confirmed that New Rochelle Aquatics Club was approved by the IRS as a 501(c)(3). Based on the records, the District has never bothered to check the company's tax status.

There is a Use of Facilities Permit Application on file for New Rochelle Aquatics Club for each of the six permits but the most recent permit application for July 2017 is signed, inexplicably, by New Rochelle Athletic Director Steve Young on behalf of New Rochelle Aquatics Club and not Kip Fierro, the principal officer of the club. This permit should not have been issued.

There is at least one problem, and often more, with the approval signatures on all six applications. None of the signatures by Jeff White, the Assistant Superintendent for Business & Administration, is dated and there is no signature at all for White for July 2017. There is no date on the signature of Bruce Daniele, Director of Security, for Summer 2016, Fall 2016 and Summer 2017.

The Use of Facilities Permit Application for all six permits issued to New Rochelle Aquatics Club fails to state whether or not it is a profit making organization, whether there will be an admission charge and. if so, how much and there is no statement of event receipts, expenses, and profits, or how they will be utilized and the name of an organization where profits will be donated.

There is no Certificate of Liability Insurance on file for Spring 2016. There is a Certificate of Liability Insurance on file for Fall 2015 but it was not valid, having expired in May 2015 for a permit that ran from September to December 2015. Neither permit should have been issued. There is a valid Certificate of Liability Insurance on file for Summer 2016, Fall 2016, Spring 2017 and Summer 2017.

There is no Hold Harmless Agreement on file for Fall 2015, Spring 2016 and Summer 2016. There is such an agreement on file for the other three permits. The Hold Harmless Agreements that are on file were signed by Kip Fierro, except Summer 2017. None of the six were signed by a School District Representative.

There are invoices for each period described in the Terms and Conditions Letter and Use of Facilities Permit Application. All invoiced amounts were paid, by check, for all six permits but none of the invoices contain any “extra 1 hour” per session charges to cover custodial costs as required in the Terms and Conditions Letter.

The Terms and Conditions Letter for the Summer 2017 permit requires payment of an extra 1 hour per session to cover custodial costs but the invoice charges different rates for custodial costs and security costs and does so at a much higher rate than once per session. The rate for custodial and security costs is charged at 150% of the number of permitted number of hours rather than a single hour at 100% per permitted session. This amounts to a radical change in pricing policy.

Prior to this summer, New Rochelle Aquatics Club held 195 permitted sessions in the pool at New Rochelle High School. In all that time, it was never charged for, and never paid for, an extra hour per session at a rate of $95.84 as required under the Terms and Conditions Letter resulting in a loss to the District of $18,236.68 going back to September 2015.

On its web site, New Rochelle Aquatics Club advertises that it charges $90 for 4 lessons during its "Saturdays in July Session”. There is a 15% discount for New Rochelle residents and staff or $77 for four lessons or a per lesson rate of $25.

Over the Fall and Winter sessions, New Rochelle Aquatics Club offers programs like Fitness/Lap Swimming/Cross Training for Middle and High School students, 10 lessons for $225. There is a 15% discount for New Rochelle residents and staff or $192 for four lessons or a per workout rate of $25.

These fees, especially the drop-in rate of $25 "per lesson" or "per workout" and the private and semi-private lesson fees are admission fees that amount to New Rochelle Aquatics Club selling access to the New Rochelle High School on a per diem basis. None of the Use of Facilities Permit Applications filed by New Rochelle Aquatics Club indicate they are charging fees. By extension, none of the applications state how much they charge, provide the required Profit/Loss accounting and could not have been approved by the Board, as required.

New Rochelle Aquatic Club has proven to be a lucrative side business for Fierro, thanks to generous subsidies funded by New Rochelle taxpayers.

Most of the applications state that the Anticipated Attendance is between 2 and 10 adults and 35 to 40 children. There are no rosters or attendance sheets to confirm these numbers.

Taken together, based on 5 adults and 35 children or 40 total customers, New Rochelle Aquatic Club charged $77 to $90 for four sessions or $25 for one session, the revenue for New Rochelle Aquatics Club’s Summer Program (4 Saturdays, 2 hours per Saturday, in July) is about $3,400 for 8 hours of permitted program time or about $425 an hour. Up until this month, the hourly rate charged for the pool was $95.48 so the 8 hours in the summer cost New Rochelle Aquatics Club $763.84. There is an unknown number of instructors at an unknown rate. The average pay for a swim instructor in Westchester ranges from between $15.00 and $20.00 an hour. Given 4 instructors at $20.00, the cost is $80.00 an hour for 8 hours or $640.00.

A fair estimate of the New Rochelle Aquatics Club P/L statement for the past Summer Program is $3,400 less $763.84 less $640.00 or about $2,000. That comes out to a net profit of about $250 an hour. Since 2015, New Rochelle Aquatics Club has operated for 195 permitted hours netting a profit of about $49,000.

All of this is required to be disclosed in a separate financial statement but as New Rochelle Aquatics Club never admitted it charged customers and the District never required a separate financial statement despite widespread knowledge that New Rochelle Aquatics Club was charging customers, New Rochelle Aquatics Club has never filed a P/L statement with the District.

All of these calculations are based on the stated rate of $95.48.

New Rochelle Aquatics Club, up until this month, was never charged the required “1 extra” custodial hour per session, saving them over $18,000 (while New Rochelle Aquatics Club was netting over $48,000) and dramatically lowering the effective hourly rate they were charged. Depending on the number of hours per session, failing to charge for that custodial hour drops the effective hourly price down to between $35 and $55 an hour.

Running the same calculation above based on a number in the middle like $45 an hour while keeping revenue constant at $3,400 for 8 hours of permitted program time and an instructor cost of $640 the pool rental cost drops to $360 for the 8 hours

$3,400 less $360 less $640 is $2,400 or a net profit of about $300 an hour. On 195 hours since 2015, New Rochelle Aquatics Club netted a profit of about $58,500.

The cost to maintain, operate and staff an indoor swimming pool is about $75 to $100 an hour, according to experts. At a rate of $45, the City School District of New Rochelle has lost $30 to $55 an hour leasing out the pool to New Rochelle Aquatics Club. Using a number in the middle, a loss of $45 an hour, on 195 hours, the District has lost $8,775 while New Rochelle Aquatics Club made $58,500.

The terms and conditions under which the City School District of New Rochelle has been leasing out the swimming pool to Badger Swim Club and more recently both Badger and New Rochelle Aquatics Club has transferred large sums of money from the taxpayers to the operators of these programs, Kip Fierro and his family. All while Fierro is being paid a full salary by the Athletic Department, a stipend as a swim coach and another stipend for the SHAPE Summer Academy along with generous benefits and a lucrative pension.

This might explain why Fierro can afford to live in a million dollar townhouse in Greenwich, CT while New Rochelle residents struggle to keep up with ever-rising property taxes much of it driven by ever-escalating school taxes.

The good news is that complaints about the sweetheart deals on offer at New Rochelle High School have spurred action by the Business Office and Facilities Office.

Based on the New Rochelle Aquatics Invoice for July 2017, there appears to be a new, unarticulated policy to charge lessees for each permitted hour at $95.48 plus custodial services at a rate of $49.02 and for security services at a rate of $45.08 on 150% of the permitted hours. This jacks up the effective hourly rate from between $35 and $55 an hour to $236.63 an hour.

This new pricing structure is not described in the Terms and Conditions Letter nor the Use of Facilities Permit Application. In fact, the old “1 extra” hour to cover custodial cost remains in the Terms and Conditions Letter signed by Fierro for his July 2017 permit. The hourly rate has also now changed; in a board resolution passed on July 5, 2017, the price of a permitted hour has risen from $95.48 to $132.00. That increases the effective hourly rate from $236.63 an hour as of last month to $273.15 as of this month.

Holding New Rochelle Aquatics Club’s revenue constant at $3,400 for 8 hours of permitted program time and personnel costs of $640 for those 8 hours, and using the more recent effective rate of $236.63 for a cost of $1,893.04, the net profit goes to $866.96 or $108.37 an hour. At the effective rate of $273.15 established by the board this month, that goes to $574.80 or $71.85 an hour.

As a housekeeping issue, our review showed that the there are many errors in the documents used by the District to lease out its facilities.

The Terms and Conditions Letter has two notable errors:

Line 3: “Admission may not be charged by the lessee unless approved by the Board of Education, in which case a written statement of receipts, expenses, and use of proceeds, together with other documentary evidence, shall be (BLANK) following the use of (BLANK) facility.

What words are missing? filed? an?

Line 7: “Fees are applied from the time one enters the building/premises for setup until one leaves the building/premises after clean-up. An additional hour will be required in order to cover the cost of custodial services rendered in opening and closing of the building/premises."

This is, evidently, no longer the pricing policy so the letter needs to be updated.

Section 3280 states "only non-profit organizations that serve the New Rochelle community will be granted permission to use school facilities. Non-profit organizations that do not reside within the District boundaries but serve a minimum of 75% of District residents shall be deemed an organization that serves the New Rochelle community."

The problem is the word "of" in the second sentence, it creates a meaning that a non-profit would have to serve about 60,000 people which represent about "75% of District residents" in a community of 80,000 people. The sentence presumably means that 75% of the participants in a permitted program have to reside in New Rochelle so if there are 200 participants then 150 participants must be New Rochelle residents.

Our past reporting and this current review of records show that for many years companies owned by Kip Fierro have charged prices at market rate to customers wishing to gain access to the high school pool while paying just a fraction of market rate to lease the pool, pocketing the difference in massive undisclosed net profits. The question has always been why? One answer may lie in the fact that one of the key people involved in leasing out the pool over the past 20 years, John Gallagher, is now under criminal indictment for bribery and kickbacks. Time for law enforcement to take a hard look at the whole mess.